Supermarket companies, in general have consistently spent more on capex than depreciation and produced very low free cash flow per share compared with EPS for many years.
For example: Sainsbury's
Sainsbury's has regularly spent more on capex than its depreciation expense for the period 2006 to 2015. At the same time, it has reported no meaningful growth in profits as measured by EPS.
Its capex to depreciation ratio for 2006-2015 ranged from 120% to 240%.
Despite all this investments (capex), EPS has not grown (In 2010 EPS was 30 p and in 2016 EPS was 22.5p.) and its FCFps has been negative for every one of these ten years,
Question to ponder
How much of the money spent on capex was to grow the business and how much was needed to maintain its existing assets and sales?
If most of this capex was actually needed for maintenance, then Sainsbury's depreciation expense may have been too low and its profits too high.
Take home point
Regardless of what the reason is for the high capex, these kind of companies are usually bad investments as they rarely produce enough free cash flow.
The above situation probably explains why Sainsbury's share price went nowhere over a 10-year period from 2005 and 2015 and why Sainsbury's had to cut its dividend payment to shareholders.
